Searching for Clues in Sotomayor's Opinions

During her tenure on the U.S. Court of Appeals for the Second Circuit, Judge Sonia Sotomayor has occasionally angered the banking industry, most famously by giving a green light to a class action against the credit card networks that eventually led to one of the largest corporate payouts ever.

But a closer look at her decisions show significant experience tackling business issues and no easy answers as to whether she will lean toward or against bank interests if confirmed to the Supreme Court.

"I have not yet seen cases that she's decided that really seem to me to give a clear picture of where she's headed," said David Skeel, a corporate law professor at the University of Pennsylvania Law School. "The business decisions seem to me to look like what appeals court decisions look like: relatively straightforward exercises."

Where Sotomayor stands on the biggest banking issue before the high court — preemption — is unclear, though at least one decision may indicate support for states' rights.

In 2005 she overturned a lower court's decision that a group of stockholders could not sue Merrill Lynch & Co. in state court for misrepresenting information about its stock, despite a federal law that such suits belong in federal court. (State courts are often seen as more sympathetic to plaintiffs in class actions.)

The stockholders — whom Sotomayor supported — hung their arguments on a detail: A previous Supreme Court decision stated that only buyers or sellers, not passive shareholders, had the right to sue in federal court. The high court eventually overturned her ruling in the case.

Whether this would have any bearing on a national bank preemption case is unclear, but some saw it as a bad sign for bankers.

"This case can be viewed as a strong anti-preemption case, but it's also possible to view the case as having nothing to do with preemption but having everything to do with supporting the agenda of class-action attorneys in cases against banks or securities firms," said Jonathan Macey, a corporate law professor at Yale Law School. "It's bad for financial institutions that are likely to be on the defendants' side of the litigation."

But Sotomayor may not get much of a chance to rule on preemption, at least not anytime soon. The Supreme Court is due to issue a decision this month on its second preemption case in two years, turning on whether a state attorney general has the right to enforce nonpreempted state laws at national banks. Observers have said the court is unlikely to take up another preemption case in the near future.

But her views on class actions — which banks and businesses generally fear because they can tie up a company for years and raise the cost of any potential payout — could reverberate for years to come.

Sotomayor's most prominent financial services case was one that continues to reverberate in the industry: the 2001 antitrust suit retailers brought against Visa Inc. and MasterCard Inc.

At the time, she had to decide whether to let retailers bring a class action against the card networks, whom they accused of tying together interchange fees on debit and credit cards to monopolize the debit card market. The card companies said the suit should not be classified as a class action.

The American Bankers Association and other groups argued that allowing the suit to proceed would significantly hurt the banking sector, the availability of credit and the economy.

But Sotomayor rejected those arguments, upholding a lower court's ruling that the retailers had the right to go forward with the case. That allowed thousands of retailers to join, increasing the $3 billion payout MasterCard and Visa had to make.

Macey said a looming question is whether Sotomayor would consistently favor the plaintiffs in similar suits.

"The big concern is plaintiff's class-action lawsuits, which are, I think, an ongoing concern for American business in general and bankers in particular," he said. "She'd have to balance plaintiffs' need for redress with the specter of abusive litigation or meritless litigation. This is a major drag on the economy: meritless class-action lawsuits."

In a questionnaire submitted last week to the Senate Judiciary Committee, Sotomayor listed a different class action among the most important rulings she has made. That case suggested she was not always favorable to class-action plaintiffs.

In 2007 she heard an appeal from investors whose class action against the New York Stock Exchange had been dismissed by a lower court. The investors were trying to claim the exchange had failed to police its own exchange adequately. Sotomayor upheld the ruling that the exchange had immunity, "arising from its quasi-governmental role in the regulation of the securities market."

She has also appeared sensitive to the subtleties of corporate law. In a case last year, Adelphia Communications Corp.'s equity holders and creditors argued over whether the equity holders had the right to object to a Chapter 11 bankruptcy plan for the company. Sotomayor affirmed a lower court's decision that the equity holders could not do so.

"She definitely demonstrated a nuanced understanding of the interests involved in a reorganization case," said Susan Block-Lieb, a professor at Fordham University School of Law.

Then there is Sotomayor's pedigree itself: 11 years on the appeals court that hears more business-related cases than any other.

"The Second Circuit continues to be probably the preeminent circuit for commercial and corporate litigation," said Paul Lee, a partner at Debevoise & Plimpton LLP. "There's a lot of federal securities litigation that occurs in the Second Circuit, and it is an area where complex financial crimes are often pursued through the U.S. Attorney's Office of the Southern District" of New York.

If confirmed, Sotomayor would be the only Second Circuit veteran sitting on the high court. Experts say that even though serving on a business-heavy court would not necessarily produce a slant in one direction or the other, it would instill a judge with a high level of experience dealing with complicated cases.

"For New York law, the perception was that it was known, and that it was stable--the courts weren't going to go off and do whacky California things," said Richard Carnell, a Fordham law professor. "We're certainly not talking about the People's Republic of Berkeley."